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Prudent Corporate Advisory Services ltd IPO

Add to Calendar 2022-05-10 12:00 AM 2022-05-12 12:00 AM Asia/Kolkata Prudent Corporate Advisory Services ltd IPO Prudent Corporate Advisory Services Limited India

Issue details

IPO Opening Date

May 10, 2022

IPO Closing Date

May 12, 2022

Issue Size

538.6 crores

Issue Type

Book Built Issue IPO

Price Band

INR 595 – 630

No. of shares

~85.9 lakhs

Market Lot

23 shares

 

Objects of the issue

To achieve the benefits of listing the Equity Shares on the Stock Exchanges and carrying out the Offer for Sale.

Shareholding Pattern

Pre-Issue

Post-Issue

Promoter

43.46%

43.46%

Promoter Group

13.43%

13.43%

Public -Selling S/h

43.15%

22.50%

Public - Others

0.07%

20.72%

Total

100%

100%

 

About the company:

Incorporated in 2002, Prudent Corporate Advisory Services Limited is an independent retail wealth management services group in India. The company’s business primarily consists of the distribution of mutual funds. It also distributes other financial products such as insurance, portfolio management schemes (PMS), alternative investment funds (AIF), corporate fixed deposits (FDs), bonds, unlisted equities, stockbroking solutions, loans against securities, national pension scheme (NPS), structured products, etc. The company earns commission from third parties for the distribution of its products. As of December 31, 2021, their assets under management from the mutual fund distribution business (“AUM”) stood at INR 48,411 crore with 92.14% of their total AUM being equity-oriented.

As on December 31, 2021, they provided wealth management services to 1,351,274 unique retail investors through 23,262 MFDs on their business-to business-to-consumer (“B2B2C”) platform and are spread across 110 locations in 20 States. Also, the number of AMFI Registration Number (“ARN”) holders empanelled with them stood at 23,262, representing 18.46% of the industry.

Key Strengths:

Operates in an underpenetrated Indian asset management industry that has grown at a CAGR of more than 20%

Mutual fund assets in India have seen robust growth, especially in recent years. Retail mutual funds category posted the highest CAGR (22% over the 5 year period from March 2016 to March 2021) among other retail financial products categories and touched approximately INR 17 trillion as of March 2021. However, penetration levels remained well below those in other developed and fast-growing peers, with a world average of 75%. The ratio of the equity mutual fund AUM-to-GDP in India at 6% is considerably low compared to 89% in the US, 78% in Canada, 50% in the UK, and 30% in Brazil.

Granular Retail AUM with a MIX skewed towards equity AUM

The number of live SIPs on their platform is 1.53 million as of December 31, 2021, with the corresponding equity AUM from SIPs standing at INR 18,950 crore (representing 42.48% of the total equity-oriented mutual fund AUM, whereas the industry average is close to 30%) as of December 31, 2021. Further, 44.09% of their SIPs are perpetual, that is till 2099 or until canceled and the rest have an average maturity of 17 years, demonstrating the relative stickiness of investment inflows through this route.

High Commission to AAUM compared to its peers

Equity as an asset class has a higher expense ratio and consequently higher earnings for distributors. The company’s commission to AAUM ratio for FY21 stood at 1.06%, while the industry average in the same period was 0.65%. This is primarily due to equity AUM forming a major portion of the mutual fund distribution business AUM. Among national distributors, the company’s market share on a commission received basis has increased from ~4% in FY15 to ~12% in FY21.

The value proposition has led to increased participation and a long-standing relationship with MFDs

Company’s offerings for MFDs include various technology platforms for them as well as for their retail investors, with continuous support through their 59-member in-house technology and 55 members back-office service team. Their MFDs as well the clients are habituated with the various offerings of their platform. Thus, they have been successful in growing their MFD network from 8,378 as on March 31, 2018 to 23,262 as on December 31, 2021 at a CAGR of 31.24%. The Company continues to enjoy long-standing relationships with its MFDs, with more than 50.6% of the company’s AUM as of 31st December 2021, being contributed by MFDs who are associated with the company for more than five years.

Key Risks:

High Dependence on Asset Management companies (AMCs)

The mutual fund distribution business constitutes a significant part of the company’s revenue. For 9M FY22 and FY21, company’s total commission and fee income from distribution of mutual fund products contributed 84.49% and 80.73% of its total revenue from operations. Any change which adversely affects the business of AMCs, will indirectly impact the company’s operations as well.

People choosing to invest in funds directly

Existing as well as potential clients may not see merit in choosing to make their mutual fund investments through distributors, and may choose to invest in such funds directly. In the event that such existing or potential clients choose to invest in such funds directly, company’s AUM or growth in AUM may reduce, which would have an adverse impact on its business.

Regulatory changes surrounding expense ratio

Regulatory changes that require the AMCs to reduce their expense ratios, could also adversely impact the company's business. If the AMCs reduce the total expense ratio due to regulatory changes, they may reduce the distribution commission, which would adversely impact the company’s revenues.

Highly competitive industry

Company could lose market share if its unable to thwart the increasing competition. Company faces competition from various companies in the financial services industry, including other MFDs and wealth management companies, who cater to the need of MFDs. Company also faces competition from the wealth management arms of several market participants, including established Indian & foreign banks and private banks.

Financial Summary:

Particulars

2019

2020

2021

9MFY22

Commission and Fees and Income.

215.1

229.3

277.6

314.1

Total Revenue from operations

222

234.8

286.5

321.3

Net Profit

21.1

27.8

45.3

57.7

Net cash generated in operating activity

12.3

50.3

57.7

50.6


Key Metrics


Particulars

5-year CAGR Ending FY21

AAUM

32.5%

Commission

34.4%

Commission as a % of AAUM

1.2%

The company’s Average Assets Under Management (AAUM) has grown at a CAGR of 32.5% to INR 24,910 crore in the five-year period ending FY21 while in the same period, mutual funds distributors’ AAUM grew at an approximate CAGR of ~12% and touched INR 10.2 trillion in FY21. Thus, indicating that the company has gained market share. The revenue from operations of the company grew at a three-year CAGR of 8.9%, whereas its total Income grew at a three-year CAGR of 9.4%. The net profit of the company saw a healthy three-year CAGR of 29%. The company’s commission as a % of AAUM stands at 1.2% which is best in class thanks to its higher proportion of equity AUM to its total AUM.

Samco’s Stance:

The Mutual Fund Industry in India has grown at a healthy pace of 18% CAGR during FY 15-21. Owning to the low penetration which stands at 15% which is far below the world average of 75%, the growing financial literacy, and increase in financial savings the industry has sufficient tailwinds to grow. But the industry in which the company operates has a low barrier to entry and thus is crowded with competition. Moreover, the company will face difficulties in tackling the bigger players in the industry such as established brands and private banks. The company is already operating on a lower operating and profit margins than its peers and the recent downgrade in its ratings by Moody’s would further affect its borrowing costs. The company’s valuation stands at 57.6x its earnings which makes it far more expensive than its peers. Considering the current sour market conditions and the low margin of safety being provided by this stock, we have an AVOID rating for this IPO.     

Issue Detail

  • Issue Open: May 10, 2022
  • Issue Close: May 12, 2022
  • Issue Type: Book Built Issue IPO
  • Face Value: INR 5 per share
  • Price Band: INR 595 to INR 630 per share
  • Bid Lot:23 Shares
  • Minimum Order Quantity:23 Shares
  • Listing At:
  • Issue Size: INR 538.6 crores

Current Bidding Status

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